WPP: breaking up world's top advertising group could net £22bn

WPP: breaking up world's top advertising group could net £22bn

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Sir Martin Sorrell’s resignation has raised the question of whether his successor will be able to stop a breakup of the world’s largest advertising group.

A number of names have emerged as potential runners and riders, including the Informa chief executive Stephen Carter, who has worked at Ofcom, cable firm NTL and at WPP’s ad agency JWT; Adam Crozier, whose pedigree includes running ITV, Royal Mail, the Football Association and Saatchi & Saatchi; the Sky chief executive, Jeremy Darroch; and Andrew Robertson, the chief executive of WPP rival Omnicom’s global BBDO ad network.

Some analysts believe that there is more value in breaking up the sprawling empire – WPP employs more than 200,000 staff in 400 separate ad businesses in more than 3,000 offices in 112 countries – particularly as its stock market value has plummeted more than a third in the past year.

1975

It may not seem like it but Sir Martin Sorrell had a career before WPP. His affair with advertising began as Saatchi & Saatchi’s first finance director

1985

Sorrell made his first step toward global domination at the age of 40, investing in a small Kent-based maker of wire baskets called Wire & Plastic Products

1987

Sorrell announces himself on the global stage by buying J Walter Thompson, the world’s oldest ad agency and an iconic US brand for $566m. In 1988 he listed on NASDAQ exchange in New York

1989

WPP’s closest call with death came following an audacious debt-fuelled move to buy Ogilvy & Mather for $864m

1991

Sorrell paid too much for O&M and as the recession-hit WPP almost went out of business, a profit warning in 1990 sent its shares tumbling from 650p in 1989 to 115p. The company made a life-saving financial restructure but the close call damaged Sorrell’s reputation as a deal maker

2005

Sorrell buys Ed Meyer’s Grey Global for £845m

2007

Sorrell launches a libel action against two former colleagues for allegedly labelling him and a female executive “the mad dwarf and the nympho schizo” while circulating a “vicious” email image of them. Sorrell accepts a settlement of £120,000 damages

2008

He moves WPP’s tax domicile to Ireland in protest at the prospect of “double taxation” of overseas profits – once abroad and once again in the UK. It moves back to the UK five years later after the government enacted legislation covering the taxation of foreign profits

2012

The rising unrest at unbridled boardroom pay boiled over into a series of investor revolts, with Sorrell one of its most high-profile scalps. This was the year of the biggest of a series WPP investor rebellions with 60% rejecting his annual pay package


Photograph: Eric Gaillard/X00102

A breakup of WPP could net shareholders more than £22bn, about £17 a share, much more than its current value of £11.50 a share or £15bn market cap, according to analysts.

WPP reports its operations in four main business groupings:

1. Advertising and media buying (estimated sale value: £11bn-plus)

The largest is advertising and media investment management – essentially the agencies that make ads and those that buy the ad space they appear in – which is the jewel in Sorrell’s crown. AMIM made £1.1bn in profit last year (almost 50% of WPP’s total of £2.3bn), accounts for 46% of revenues and boasts the best margin of 19%.

WPP revenues by sector
WPP revenues by sector

Global advertising networks

J Walter Thompson: The world’s oldest advertising agency group with clients including Shell, Debenhams and Kit Kat.

Ogilvy & Mather: Clients include Unilever’s Dove, as well as Boots.

Young & Rubicam: Its most noticeable campaigns of recent times have included Virgin and the BBC.

Grey Global: Clients include Marks & Spencer, Lucozade and Birds Eye.

Global media agency networks

MediaCom: Employs almost 6,000 staff globally with clients including Sky, Gillette and Mars.

Mindshare: Has clients including HSBC and Marmite owner Unilever. It is in charge of allocating $35bn (£24.4bn) worth of advertising spend a year.

Wavemaker: Formed from the recent merger of MEC and Maxus, employs 8,500 staff with clients including L’Oréal, Vodafone, Compare the Market and Morrisons.

Essence: Clients include BT, Google, Financial Times, Target and Visa.

WPP revenues over time
WPP revenues over time

2. Public relations and public affairs (estimated sale value: £1.4bn)

The least profitable of WPP’s units, accounting for just 8% (£183m) of the total operating profit and 7.7% of revenues. Companies within this division include Cohn & Wolfe and Burson Marsteller (which are merging globally), Hill & Knowlton, Finsbury, Buchanan, Clarion and Ogilvy PR.

3. Market research (estimated sale value: £3.5bn)

The second-smallest profit centre for WPP, which officially calls this division data investment management, contributes 15% of total profits (£350m) and 18.5% of revenues for the group. WPP is already mulling a potential sale of the division.

WPP revenues by geography
WPP revenues by geography

4. Branding, healthcare and specialist (estimated sale value: £8bn to £10bn)

The division has some attractive assets due to the profitability of areas such as healthcare. It is also home to a number of WPP’s valuable digital and interactive businesses. It accounts for 27.5% of profits (£625m) and 28% of total revenues.

Digital advertising businesses include Wunderman, VML and AKQA, which has clients including Nike and Volvo. Branding agencies include Fitch and Coley Porter Bell. Healthcare communications agencies include GCI, Sudler & Hennessey and Common Health. Clients include AstraZeneca, Sanofi, Colgate, GlaxoSmithKline and Kimberley Clark.

WPP share price

Other investments (estimated sale value: £6bn)

WPP also has what anlaysts have called a “hidden treasure trove” of assets that are not part of its core business lines but could be worth as much as £6bn.

These include stakes in the Vice media group and Nasdaq-listed software group Globant. WPP lists these investments, which also include tech and digital businesses, on its books at a value of £2.2bn. However, analysts point out that the true market value could be three times higher, at more than £6bn.



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